The numbers do not stack up convincingly for a Shell PLC (LSE:SHEL, NYSE:SHEL) takeover of BP PLC (LSE:BP.), according to JP Morgan.
Even under optimistic assumptions, the bank sees only moderate financial benefits for Shell and warns that a more compelling case would require a much lower price for BP or significantly higher synergies.
The investment bank modelled a 20% premium for BP and post-tax synergies equivalent to 4% of the combined equity value, or about $3.5bn annually.
Under this scenario, the impact on Shell's core metric of free cash flow per share growth to 2030 was deemed only moderately accretive.
To make a clearer case for a takeover, the analysts suggest Shell would need to include more cash, deliver double the synergies, or see BP's valuation fall by at least 20%.
The speculation emerged after a Wall Street Journal report claimed Shell had entered early-stage talks to acquire BP.
A Shell spokesperson denied any discussions were taking place, though there has been no formal press release.
While a tie-up between two of the world's largest energy companies would attract attention, JP Morgan's analysis highlights the financial and execution risks involved.
These include potential gearing pressure and the challenge of integrating two complex, global operations.
Despite Shell's firm denial of any active negotiations, the renewed speculation could see BP shares retain some bid premium in the near term.
JP Morgan had previously closed its underweight stance on BP earlier this year, citing this kind of scenario as one reason.